1. ABC Company is thinking of replacing of one of its machines with a newer one. The old machine has a book value of $610,000 and a remaining useful life of 5 years and it can be sold to another firm in the industry for $255,000. The old machine is being depreciated by $120,000 per year, using the straight-line method. The new machine has a purchase price of $1,175,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $155,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labour, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $265,000 will be realized if the new machine is installed. The company's marginal tax rate is 40% and it has a 15% WACC. a. What initial cash outlay is required for the new machine? b. Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. c. What are the incremental cash flows in Years 1 through 5? d. Should the firm purchase the new machine? Support your answer.

Solve using a financial calculator. Do it Manually. ( Do not use on excel)